April  2006      

In this issue of Home Base:

1. Expanding Free Electronic Federal Tax Filing

2. Congress To Tackle Title Insurance Rip-offs

3. 9-1-1 Emergency Service Should Be Available To Internet Phone Users

4. Energy Costs Will Shift Buyer Priorities in New Homes

5. Consumer Groups Oppose Anti-Homeowner State Law

6. Federal Environmental Efforts Reaching Out To Homeowners

7. Home Buyer Tools Expanding

8. Home Sellers Must Work Smarter In A More Competitive Market

9. State Attorney Generals Looking For Real Estate Antitrust Violations

Congress To Tackle Title Insurance Rip-offs

AHGA President Bruce Hahn (left) and House Financial Committee Chairman Mike Oxley (R – OH - 4) discuss title insurance problems.

Congressmen Mike Oxley (R-OH-4) is mad again. When he gets mad the House Financial Services Committee Chairman usually orders a Government Accountability Office (GAO) investigation of the industry suspected of wrongdoing, as he did with the real estate industry last year. And he usually turns out to be right. The previous GAO study revealed that the actions of the National Association of Realtors (NAR) and several state real estate associations make it harder for home buyers and sellers to take advantage of cost saving Internet-based business models. NAR’s efforts to restrict competition earned it an antitrust lawsuit from the U.S. Justice Department, which is pending.

Now Mr. Oxley is looking at the title insurance industry. Title insurance is an expensive but important part of the home financing process. At its heart is a title search, still done by hand in many courthouses, but increasingly made easier by Internet access. An individual searches the history of ownership of the property to identify any liens or other clouds to the ownership of the property. Many of those liens or other clouds to the title can be corrected, but mortgage companies are reluctant to make mortgage loans if the security for that loan (i.e. the home) is threatened. A title insurance company executive told the AHGA President that those searches may be done by company employees or by independent contractors, who may typically be paid about $125 to do a title search.

What is truly stunning about the U.S. title insurance industry is how little money is ever paid out in claims to those insureds compared to other forms of insurance. While health insurers pay out $.86 of every dollar collected, and homeowner and auto insurers pay out $.75 and $.60 respectively of every dollar collected, title insurers pay out between $.01 and $.05 of every dollar collected, according to several different studies. Title insurance company executives point out that the whole purpose of the title search is to avoid having to pay out premiums, and that the cost of the title search is higher than underwriting costs in other insurance sectors.

Both of those points are valid, but several very significant concerns remain. The price of title insurance in many areas (typically about $1,000 on a $300,000 home) is still very high relative to the identifiable costs. There is some other overhead of course, and an insurer must make a profit, but with $950 left over (after setting aside 5% for claims payments), the title insurers must have a very bloated overhead and/or be making exorbitant profits.

Other evidence also suggests that this is the case. Realtors, not consumers usually end up making the title insurer decision for most home buyers. Studies have shown that they are often rewarded by the title insurance companies with lavish vacations and other gifts. Unfortunately line 1108 on the HUD 1 form, which identifies the cost of title insurance, does not currently identify what portions of that title insurance fee benefits the real estate company in the form of commissions, payments to their business affiliates, or gifts or other remuneration.

The proliferation of sham title insurance referral companies created as affiliates of real estate companies has caught regulators and legislator’s attention. They insure the title but pass on all of the title insurance risks by reinsuring all of their risk with traditional title insurance companies. The companies in fact are nothing but shells designed to funnel portions of inflated title insurance payments from home buyer’s money back to their real estate broker and/or agent. Those savings should be passed on to the consumer. Colorado's Insurance Division in early 2005 investigated a number of Colorado title insurers for practices that unnecessarily overcharge consumers. Other investigations soon followed in Florida, California, New York, Washington, Oklahoma, Minnesota, Hawaii, Washington and other states.

More recently, a former New Mexico legislator is suing a major title insurer in a lawsuit that also seeks to strike down parts of the title insurance law and regulations in New Mexico. Former Democratic state representative Max Coll in March, filed a lawsuit seeking class-action status against the insurer and state Insurance Department and Public Regulation Commission officials. New Mexico home buyers who paid for title insurance could get partial refunds if the lawsuit is successful.

Coll alleges that the Public Regulation Commission’s requirement that title insurance rates be identical is anticompetitive and unnecessary since many other states have no such requirement. In Mr. Coll’s case he bought a home in 2003 and paid $2,430 for title insurance. When he refinanced the home two years later, he was charged $2,407 for another policy. This very high title insurance reissue price is very common in home refinancing but difficult to understand in light of the limited additional risk.

Chairman Oxley, told guests at the annual meeting of the Real Estate Services Providers Council that he will hold hearings on the issue on April 26. AHGA applauds Mr. Oxley for addressing this serious problem, and will submit testimony to the committee calling for federal action to address the problem.
There is other good news on the horizon as well. Until last month there was no web site that allowed home buyers to compare prices in states where price competition in title insurance is allowed.

In late March TitleInsurance.com announced a nationwide network of title insurance companies that provide quotes to consumers who are looking for title insurance. Whether or not it captures the more than 100 true title insurance companies remains to be seen.

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9-1-1 Service Should Be Available To Internet Phone Users

Congress should require all phone service providers to make 9-1-1 emergency service available to all of their customers. The lack of timely access led to 9-1-1 emergency services from Voice over Internet Protocol (VoIP) providers has lead to death and injury where VoIP customers have been unable to reach 9-1-1 in a timely fashion. As a result the Federal Communications Commission (FCC) issued a regulation requiring that VoIP providers make 9-1-1 service available to their customers. It gave the VoIP providers time to comply, and many of them now provide 9-1-1 service.

Some VoIP companies have not complied with the FCC 9-1-1 regulation. They are supporting language in a pending telecommunications reform bill that would exempt them from the FCC requirement if doing so is not technologically or operationally feasible.

While it may be more difficult to provide full “Enhanced 9-1-1” capability in some areas, the lack of that access can be a life and death issue. The American Homeowners Grassroots Alliance (AHGA) strongly supports more competition in telecommunications services, but where the lives of American homeowners and other consumers hang in the balance there can be no room for compromise. In no circumstances should VoIP services be offered without the ability to deliver a 9-1-1 call directly to the correct Public Safety Answering Point (PSAP) through dedicated 9-1-1 trunk lines.

Many VoIP companies have already complied with the FCC regulation, and to retroactively lower the standards on this important regulation would undermine the incentive for companies to comply with federal regulations. To the contrary, it would reward companies who have not complied and punish companies who have made the efforts and investment to comply with the FCC’s 9-1-1 regulation in a timely fashion.

AHGA strongly urges members of the House of Representatives to remove the provisions in the Communications Opportunity, Promotion, and Enhancement Act of 2006 that would allow VoIP services be offered without the ability to deliver a 9-1-1 call directly to 9-1-1 emergency service providers. When they develop the ability to deliver 9-1-1 calls VoIP service providers should be allowed to enter the market. Until then we should not put the lives of American homeowners and other consumers at risk for the benefit of VoIP service providers who are unwilling or unable to provide that service.

AHGA urges all homeowners to use our congressional contact tool to contact their U.S. representative and urge him or her to support the elimination of the provision that would eliminate the obligation of VoIP service providers to provide 9-1-1 service to all consumers.

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Energy Costs Will Shift Buyer Priorities in New Homes

The American Homeowners Foundation (AHF) predicts that new home buyer priorities will shift dramatically over the next two years. “The combination of rapidly increasing energy costs, increasing mortgage rates, and higher home prices will undermine the “McMansion” trend that has continued for the last several decades”, according to AHF President Bruce Hahn. The average size of new homes last year increased to 2,433 square feet from 2,349 square feet in 2004, and 2,095 square feet in 1995, according to the National Association of Home Builders (NAHB).

AHF believes that home buyers will increasingly prefer a slightly smaller but more energy efficient home to a larger sized home. Consumers paid an average 13.6 percent more to heat their homes last winter. It could have been much worse – thanks to a warmer than usual winter in many parts of the country the bill came in at $152 less than the Energy Department had predicted. Energy efficiency goals and recent tax incentives will drive more consumers to become more interested energy star homes, AHF believes. The organization’s advocacy arm, the American Homeowners Grassroots Alliance, was a strong supporter of provisions in the 2005 energy bill that provide tax credits for new home construction meeting federal “energy star” standards, as well as similar tax credits for energy efficiency remodeling improvements in existing homes. The IRS has issued guidance on what kinds of energy efficiency improvements are eligible for the tax credits. Homes that meet Energy Star certification criteria must be 30% more energy efficient for heating, cooling and water heating than a home built to traditional building code standards, Energy Star homes save an estimated average savings of $250 to $300 a year based on previous energy costs. Savings are sure to rise with energy price spikes. Both credits became available on January 1 of this year.

The deadly duo of higher cost of homes resulting from appreciation and higher cost of mortgage financing will also limit the size of homes many consumers can afford to buy. Though still low by historical standards, mortgage rates recently inched up to a four year high. And when you apply those rates to large new homes priced in excess of $500,000 in many areas, you get beyond the affordability of many home buyers. Sellers of larger and pricier new homes are already cutting prices, in many cases indirectly by adding premium features at no cost.

Economics will also force more home buyers to give more attention to space efficiency in their home. Buyers will still want their decks and an island in the kitchen if they can afford them. But getting the room space they need without spending unnecessarily on oversized and ostentatious open foyers or other unneeded pure eye candy will become an important focus for many buyers.

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Consumer Groups Oppose Anti-Homeowner State Law

Members of the South Carolina legislature are supporting legislation that would prohibit real estate brokers from offering commission rebates to their clients. Commission rebates are increasingly popular tools to reduce the net commission cost. They are frequently used by online brokers and have been opposed in many states by traditional real estate brokers who are desperately trying to preserve their 6% commission.

In a joint letter to key legislators AHGA President Bruce Hahn and Consumer Federation of America Executive Director Steve Brobeck asked members of the legislature to vote down the measure, H. 3478. Brobeck and Hahn observed that the legislation is similar to a Kentucky regulation, which, in 2005, was the subject of an antitrust lawsuit filed by U.S. Department of Justice against the Kentucky Real Estate Commission.  The Kentucky regulation was withdrawn after the suit. Additionally, the measure subverts free market principles by hindering competition and intervening on behalf of one type of real estate broker at the expense of others.

There is no evidence that consumers are harmed by rebates or discounted real estate sales commissions, the two consumer leaders concluded.  Indeed, there is every evidence that the emerging competition in real estate services is a tremendous benefit to consumers and homeowners.  The outlook for the measure is uncertain at this point

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Federal Environmental Efforts Reaching Out To Homeowners

Senator Blanche Lincoln, a strong supporter of efforts to match homeowner rights and environmental goals, discusses efforts with AHGA President Bruce Hahn at Congressional Sportsman’s Caucus event

Efforts to protect endangered species are becoming more important as the population grows, and protecting the habitat they need to survive becomes an even greater national priority. Rural landowners have long been aware of federal policies regarding endangered species. As more and more city and suburban homeowners buy rural homes and woodlots, they too need to be aware of both the needs to preserve critical environment as well as opportunities where they can contribute to this important goal.

Fortunately recent federal legislative initiatives and federal programs are focusing on more a more collaborative approach to this national challenge. The U.S. House of Representatives has passed the Threatened and Endangered Species Recovery Act. It focuses on more voluntary programs, including compensating land owners who improve species habitat on their land. Improvements are badly needed because the current Endangered Species Act has a recovery rate of less than one percent. On the Senate side a more modest version is also under consideration. AHGA believes both bills contain very worthy provisions, and urges leaders from both parties to work together in a bipartisan fashion to forge improvements in our environmental laws.

AHGA would also like to see expanded funding for many of the programs, especially voluntary partnerships to provide incentives for small property landowners to contribute to the goal of protecting our environment. Spurred by recent federal tax law changes and a strong economy, more and more urban and suburban dwellers are buying or building second homes in the country or the mountains. The homes often come on 3 – 20 acre plots, and the owners have no economic need to use the land for farming or timber harvesting. Many would be happy to preserve the land to benefit endangered species. Federal programs that would reimburse those property owners for the legal cost of putting an environmental easement on their property might be a more efficient and less cumbersome additional choice compared to some of the more complex tax incentives.

Many programs that can help homeowners contribute to the national goal of protecting our environment are managed by the U.S. Fish and Wildlife Service. Their Partners Program, active in all 50 states and U. S. Territories, provides technical assistance and delivers on the ground restoration projects, particularly to our Nation’s private landowners, farmers, ranchers, and corporations.

The Program has joined with landowners, other citizens, and many partners nationwide to conserve fish and wildlife habitat in very significant ways. The program complements other similar efforts by the Agriculture Department’s Natural Resource Conservation Service (NRCS) and Farm Service Agency (FSA) to help deliver a variety of conservation programs of the Farm Bill.

The current important objective is to assure robust federal funding for these deserving programs so that more homeowners who own property that is important to environment and/or the protection of endangered species can be encouraged to participate in efforts to help in this worthy effort.

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Home Buyer Tools Expanding

New online real estate tools are proliferating, offering consumers more diverse and interactive research tools and more transparent access to property data and transactions. They join LendingTree, Homestore, and a host of small innovative and mostly e-centric brokers that are slowly loosening the grip of traditional brokers on homeowner’s pocketbooks.

The newcomers, including Zillow, Redfin, Trulia, HomeThinking, PropertyShark, Google Base, Craigslist, HotPads.com, Homescape, LiveDeal, Oodle, and Windows Live Expo, are bringing consumers both new services and more transparency. Zillow may have been the most ballyhooed of the recent rollouts. Zillow offers free home-value estimates and data on more than 60 million houses in the United States. Like many of the others there is no preregistration requirement, although there are links to vendors in a manner similar to Google. Even though it has generated tremendous traffic, accuracy problems in a number of places soon became apparent. The company has acknowledged the challenge and announced that its top priority is to improve the accuracy of its “zestimates”.

Several of the newcomers are not real estate specific. Both Google and Craigs List are broad based. Craigslist is an online classified site with home listings that are both free and easily renewed. It is currently primarily an urban/suburban oriented FSBO tool and is not connected to local MLS’s, although traditional agents are beginning to put some of their MLS listings on it as well. It will be interesting to see if home sellers using traditional real estate brokers begin to expect their agent to post their homes on it as well.

Google will almost certainly become a major player both because of its huge search presence (41.4 percent of all searches) and its business model. It doesn’t require registration and it doesn’t charge brokers to be included in its search, or require consumers to register or pay to use it. As a result, it may be the best positioned to eventually become the equivalent of a national, or even worldwide, multiple listing service.

With Google real estate searches you input a major location, and use the "Refine your search” tool to drill down to the level you want. Like MLS searches you can narrow your search further by using additional criteria such as price, number of baths or bedrooms, etc. It also has a map tool and if you register with Google you can list your home in the system.

Interactivity will likely increase as a result of these new business models. Many of them can easily be adapted to allow buyers and sellers to communicate directly with each other much as buyers and sellers can do on eBay. They could also provide for consumer feedback. For example, a potential buyer could post what he/she liked or didn’t like about a property just visited, or a real estate agent they worked with, much as they might write a review of a book they had read on Amazon.com.

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Home Sellers Must Work Smarter In A More Competitive Market

The sellers market of 2005 has become history in most parts of the country. Almost every area has more homes on the market than it did at this time last year. In some cases the supply is still well below historic averages and prices have simply leveled off. In others the supply is much greater, and there are signs that the great run up in home prices, in some areas, is beginning to turn into a great rundown.

Least affected are areas that have been least affected by the home appreciation boom. Homes in some rural or economically challenged areas that never really experienced the multiyear double digit home appreciation are pretty well insulated from that process working in reverse. Wherever you live the valuation trend is likely to affect the price of the home you will sell to the same degree as the next one you buy. So with some exceptions most homeowners, who will be both selling and buying homes in the same area, will experience little net effect even in a declining market.

However, almost regardless of where you live, today’s buyers can afford to take their time and be pickier. That means you will need to work harder and smarter to sell your home this year than last.

Spring is traditionally the best time of year to sell so if you plan to sell it is important to get your home on the market soon.

A successful home marketing effort requires more preparation and planning. The first step is to clear out, clean up, and fix up. Most houses are too cluttered and less furniture, pictures, etc. makes rooms look larger. Have a yard sale and/or store as much as possible. Clean everything – floors, rugs, walls, etc. thoroughly. Think about hiring a maid service to come in for a day if you can afford it. If you do prepare a detailed list of everything you expect to be done so there’s no misunderstanding. If the walls still need repainting after cleaning use a neutral color. Fix or replace minor broken items and consider modest home improvements, particularly upgrades to worn and/badly dated kitchens or baths. You will recover most, if not all, of your costs if you don’t go overboard. More importantly the improvements may be the difference between a sale and no offer. It can also give you a competitive advantage to have a professional home inspection and make the results available to buyers, assuming your home has no serious issues.

Find out how much your home is worth. There are multiple tools ranging from technology based websites like Zillow.com, HomeGain.com and HouseValues.com, to word of mouth regarding selling prices of other similar homes in your neighborhood. Also consider asking reputable and experienced local real estate agents to provide you a market analysis that includes recent selling prices of similar homes in your area, prices of similar homes on the market or recently withdrawn from the market, their valuation of your home, and a proposed marketing plan to sell your home. The real estate agents will make a pitch to list your house. Although more homeowners are using “list only” brokers these days, understand that you’ll be doing all the work, and in a buyers market that means you would be doing a lot more work. In last year’s sellers market many home sellers could find the time to do what they needed to. However, if you are time challenged with 50 -60 hour work weeks, and a spouse with a full time job, in a very slow market you may be better advised to negotiate for a lower commission from a full service broker than to try to sell it yourself this time around.

If you do decide to use a real estate agent interview them the way you would a job applicant at your company. You want to know what professional certifications they have, how much experience they have in your neighborhood, and you want current references. There are interview forms for that purpose in the Foundation’s book How to Sell Your Home Fast .

If you do list your home with an agent limit the listing to 90 days if possible. In any event include an addendum to the listing describing mutually agreed marketing efforts (i.e. how many open houses will they hold, how frequently will they advertise the home in the dominant local newspaper). Include a sentence that allows you to cancel the agreement without any restriction or liability if the marketing commitments aren’t met.

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State Attorney Generals Looking For Real Estate Antitrust Violations

The National Association of Attorney Generals (NAAG), which represents state attorney general offices, has formed a Real Estate Working Group to look into possible violations of state antitrust laws by real estate service providers, MLSs and/or state real estate associations. Over twenty states are represented in the group, which is chaired by Blake Harrop of the Illinois Attorney Generals Office.

Mr. Harrop contacted AHGA to invite us to share information we might have with the working group, and to seek AHGA’s assistance in spreading the word that they are interested in specific information regarding activities in the real estate area that might violate state antitrust laws. Those might include the types of activities that have already attracted the attention of the U.S. Department of Justice (DoJ). DoJ’s Antitrust Division has initiated antitrust actions against state real estate commissions that have proposed to ban real estate commission rebates to consumers, or sought to outlaw “list only” brokers. Other types of potential violations would be those that discriminate against particular types of businesses and their customers. For example, if a home seller chooses to use a “list only” broker and the local Multiple Listing Service (MLS) has policies that limit the dissemination of that home seller’s listing, or treat it differently than other listings, there could be a possible antitrust violation.

Consumers and businesses that suspect that they may be victims of business practices that violate antitrust laws should either contact their state attorney general’s office directly or get in touch with Mr. Harrop and he will forward the info on to the appropriate officials in your state. He can be reached at (312) 814-1004, or email him at BHarrop@atg.state.il.us , or by mail at Illinois Attorney Generals Office,100 W. Randolph St., Chicago, IL 60601.

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 When it comes to legislation and regulation too many homeowners sit and the sidelines and watch as their future is decided for them. Others weigh in on the issues important to them, and often one letter, email or phone call can make the difference.

Are any of the issues in this month's Home Base of interest to you? If so, please take the time to contact your legislator and express your views. It's easy - you can reach your legislator in a couple of mouse clicks, and you can use the content in Home Base on our website to help you develop your message. To look up the phone number and send an email to your U.S. Representative or your U.S. Senators, click here. The site can look up their names by zip code for you if you don’t know them.

Many legislators also reserve office hours when they are available in their home state or home district offices to meet with constituents to discuss policy issues. You may be able to arrange a personal meeting while they are home. To find out federal legislator’s schedules you can use our congressional look-up tool to look them up by name or zip code, and contact their offices by email, phone, or fax, or simply call the Congressional switchboard at 202-225-3121 and ask to be connected to your representative or either of your senators by name.

Are you interested in an issue that is important to you and significantly impacts home owners or home ownership?
Any member may propose a position on an issue, so please check the American Homeowners Grassroots Alliance 2006 policy priorities list. If your favorite position isn't on the list, please send us an email and tell us why you think the American Homeowners Grassroots Alliance should be working on it.